4 Ways to Get the Best Home Equity Loan Rates

BY The Lenders Network

home equity loan rates

3 minute read

Home equity loans and lines of credit are a great way to get access to cash using the equity in your home.

But, if you don’t get the best deal it can cost you greatly.

Just a quarter of a percent difference in rates can cost, or save you tens of thousands of dollars.

In this article, we’re going to show you how to get the lowest home equity loan rates possible.

See if You Qualify for a Hoem Equity Loan

What is a Home Equity Loan?

A home equity loan, also called a second mortgage, that uses the equity in your home as collateral. These loans have low-interest rates and a loan term is typically between 5-15 years. Homeowners can borrow up to 80% of the loan-to-value ratio (LTV ratio).

Most lenders require a minimum credit score of 640 to qualify for home equity loans. Borrowers with lower fico scores will find it easier to qualify for a cash-out refinance.

4 Ways to Get the Best Home Equity Loan Rates

How good of a deal you get on a loan comes down to two things, closing costs and the interest rate. Here are five things you can do to make sure you get the best deal.

1. Check Your Credit

Your credit score is the biggest factor in determining the interest rate on a loan, the higher the score, the lower the rate.

Before you get started on the loan process you should check your credit score. There are several websites that allow you to check your credit report and scores for free. Credit Karma and Credit Sesame are the two sites we recommend.

2. Improve Your Score

Before you start contacting lenders and applying, you should do what you can to increase your score. A higher credit score will not only give you a better chance of qualifying for the loan but will also get you a lower rate.

Pay down your credit card balances – Credit utilization ratio is the amount of credit you’re using and the higher it is, the lower your score will be. Try paying down your card balances to under 25% of the credit limit.

Don’t apply for new credit – Credit inquiries will lower your score so put off buying a new car or getting a credit card until after you secure a home equity loan.

Dispute errors or negative information – If you find any errors or negative account information on your credit report you can dispute it with the credit bureaus. The creditor will have 30 days to verify the account or it will be removed from your report altogether.

Read this article for more tips on how to improve your credit score 

3. Compare Rates with Multiple Lenders

Don’t make the mistake of getting a loan with the first lender that approves you. Interest rates and closing costs will vary lender to lender so it’s a good idea to compare loan offers from at least 3 different lenders.

Use our loan comparison calculator to see which loan is the best deal

4. Consider Getting a HELOC

A home equity line of credit is very similar to a home equity loan but instead of getting a lump sum payment, you get a line of credit you can borrow from as you need.

Instead of having to pay interest on the full amount, with a HELOC you only pay interest on the amount borrowed. Unless you need a large sum of cash upfront a HELOC may be the better option.

Home Equity Loan Benefits

  • Large loan amounts: For most types of loans, such as a personal loan, the most you can borrow is less than $100,000.  With a home equity loan, you can borrow up to 80% of your home’s value.
  • Easier Approval: A loan that uses your home as collateral makes it less risky for a lender, allowing them to have flexible requirements.
  • Tax deduction: Interest paid on a mortgage loan is tax deductible in some cases.
  • Increase home value: Using the equity loan to make repairs or improvements to your home will increase the property value.
  • Low interest rate: HELOC interest rates are usually much lower than you will find with personal loans or credit cards.

HELOC vs Home Equity Loans

A home equity line of credit, or HELOC, is very similar to an equity loan, however, instead of receiving a lump sum payment a HELOC provides a line of credit that works like a credit card. With a revolving line of credit, you can borrow what you need when you need it.

HELOC Benefits

  • Only borrow what you need
  • Low monthly payments
  • Only pay interest on the borrowed amount
  • Lower interest rates than personal loans